Gold and equities outperform

This year, the most common advice to investors has been not to go overboard. The reason: With four days to go before June 30, all asset classes have done precious little to attract interest from retail investors.

No wonder, someone like Vishal Desai, has decided to put aside his investment plan for the moment. He has not invested a rupee in the markets, since January. “I really don’t know where to put the money," he says.

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The volatility in the prices of most asset classes in these months has made everyone cautious. The Bombay Stock Exchange Sensitive Index, or the Sensex, is moving between 15,000 and 18,000. Similarly, gold has been trading in the Rs 27,175–30,295 (Rs /10g) range and silver between Rs 51,100 and Rs 60, 820 (Rs /1kg).

No wonder, given the range of trading remaining at between 10-20 per cent for all the three asset classes, investors or experts have found it difficult to take a call.

Only two asset classes have been close to the inflation (average wholesale price index of 7.34 per cent) rate. Equities have returned 9.39 per cent, a little less than gold at 9.78 per cent. Silver has given 4.84 per cent returns and debt funds between four to five per cent. If you had invested in fixed deposits at the beginning of the year, the returns would be similar. As far as the consumer price index goes, at an average of 9.33 per cent, only gold and equities are pre-tax inflation neutral.

While the mood has been sombre amid investors in the first half of the year, experts say people like Desai should now start showing some interest in the stock markets. “For those looking at fresh investments, it is a good time to buy equities, as valuations are not expensive at the moment. The Sensex is trading at 10-12 per cent discount to its average valuations. The negatives have already been factored in, as the markets always trade with a forward-looking view," says Prateek Pant, director (products & services), RBS Private Banking. However, the strategy should not be lump sum. According to Alex Mathews, head of research, Geojit BNP Paribas Financial Services, one should buy in small quantities when the market corrects.

For those already invested, this is not the time to get out by either booking losses or small profits. If you are a risk-taker, boost your portfolio by adding large-cap stocks, available at cheap rates or even look at exchange-traded funds.

As for investors looking to build a defensive portfolio, short-term debt funds are a good bet now, when interest rates have peaked. “Since rates have been left unchanged, opt for short-term debt funds to take advantage of the higher interest rates cycle," says Ramanathan K, CIO of ING Investments.

Those not yet invested in short-term funds could reallocate at least 50 per cent of their debt portfolio into short-term income funds (for three to six months) and dynamic bond funds (for 12-15 months). “The rates are attractive and opportunity for capital accrual is also higher. These are good instruments to tackle market volatility," he says.

While the verdict on equities and debt is clear, one has to be more careful about gold. Angel Broking’s Naveen Mathur, associate director (commodities) says, since September, the demand for gold as the safe-haven asset has seen a dip. “If the rupee continues to be weak, we could see a further downside to gold prices. Going forward, we do not know when it will take the route of the safe haven asset again," he says.

Experts suggest that, one should wait to buy gold at least till the rupee appreciates to 54 or even higher. If one does want to buy into gold, the best route is the Exchange Traded Fund (ETF) way. One should buy in small quantities. And if one holds gold, he should stay invested and book profits at highs, if required.

Silver, which has become a popular asset class over the last few months, has dropped to a more affordable Rs 53,000 per kg. However, experts are not very bullish on bullion, as it is very dynamic in nature. “The prices of base metals, including silver is expected to fall, as there is a lack of demand by industries, which use these as raw materials," says Mathur.

Therefore, if one really wants to buy into commodities, stick to gold, say experts.